Savers have benefited from investing in a certificate of deposit (CD) over the past couple of years. Many CDs currently pay 5% yields, making them a fantastic place to store money with a near-guaranteed return.
However, the Federal Reserve estimates it'll cut the federal funds rate once later this year and make multiple cuts next year, which could dramatically lower CD yields.
Here's how rate cuts could affect CDs and what to do about it.
How a rate cut could affect CD rates
The good news is that if you have money in a CD, a Fed rate cut won't impact your current CD rate. CD rates are fixed for your entire term.
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For example, if you open a 5% CD with a 2-year term tomorrow, you're nearly guaranteed to earn that interest rate on the amount you've deposited. The only way you wouldn't earn the 5% rate is if you take your money out early. In that case, you may pay a penalty fee of 90 days to 180 days of simple interest, reducing your CD interest rate.
But if the Fed cuts interest rates soon, yields for new CDs will likely fall. Policymakers estimate they could make one 25 basis point (0.25%) rate cut this year, potentially pushing CD rates down by as much by the end of 2024.
And with four potential cuts next year, CD rates could drop by a total of 1.25 percentage points by the end of 2025. This means 5% CD rates could soon be a thing of the past, replaced by rates no higher than 3.75%.
What you should do now
Depending on your financial needs, there are two steps to consider before interest rates fall. Here are a few suggestions.
1. Do nothing
This is the best approach if you currently have money in a CD. There's nothing you need to change, and there is no decision to be made if the Fed cuts interest rates. Leave your money in the account, and you'll earn the guaranteed rate you were promised when you opened it.
2. Open a new CD before rates go down
If you want to earn a nearly risk-free 5% yield on your money, it might pay to open a CD soon. There could be multiple rate cuts before the end of next year.
This means that 5% CD rates could disappear. So, if you have money you really want to put into a CD, now is the time to do it.
There's nothing wrong with waiting a little longer to put your money into a CD. Just know that you'll probably get a lower rate than what's currently available.
Don't forget this
While many CDs offer high yields, they aren't great places to store cash you might need soon.
You have to commit your money to being locked up for a period or pay a penalty to take it out early. Some no-penalty CDs exist, but they usually pay lower interest rates and can be harder to find.
Before opening the CD, ensure you don't need the cash for upcoming purchases or emergencies. If you think you'll need it, put it into a high-yield savings account for easy access.
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FAQs
Policymakers estimate they could make one 25 basis point (0.25%) rate cut this year, potentially pushing CD rates down by as much by the end of 2024. And with four potential cuts next year, CD rates could drop by a total of 1.25 percentage points by the end of 2025.
What are CD interest rates expected to do in 2024? ›
CD Rates Forecast 2024
The CME FedWatch Tool, which measures market expectations for federal funds rate changes, shows that most experts expect rates to sit between 4.50% and 5.25% by December 2024.
Where will CD rates be in 2025? ›
It'll all hinge on how inflation trends over the next few months. But either way, the general expectation is that the Fed will start cutting rates before 2024 is over. That means CD rates are likely to be lower in 2025 than where they are today.
What is the interest rate forecast for 2024? ›
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Economists at Freddie Mac expect mortgage rates to stay above 6.5% throughout the end of 2024, according to its June Economic, Housing and Mortgage Market Outlook. The mortgage giant anticipates one rate cut later this year – as long as the job market slows down enough to temper inflation.
Can you get 6% on a CD? ›
You can find 6% CD rates at a few financial institutions, but chances are those rates are only available on CDs with maturities of 12 months or less. Financial institutions offer high rates to compete for business, but they don't want to pay customers ultra-high rates over many years.
Should I lock in a CD now or wait? ›
Unlike traditional or high-yield savings accounts, which have variable APYs, most CDs lock your money into a fixed interest rate the day you open the account. That's why if you suspect that interest rates will soon drop, it can be a good idea to put money in a CD to preserve the high APY you would earn.
Where can I get 7% interest on my money? ›
As of July 2024, no banks are offering 7% interest rates on savings accounts. Two credit unions have high-interest checking accounts: Landmark Credit Union Premium Checking with 7.50% APY and OnPath Credit Union High Yield Checking with 7.00% APY.
How high could interest rates go in 2025? ›
What will mortgage rates look like in five years? There are no sources for officially projected interest rates in five years, but the Mortgage Bankers Association does predict rates on 30-year mortgages will drop to 6% by the end of 2025. Fannie Mae predicts a 6.3% rate.
Where will interest rates be in 2026? ›
A Closer Look at the IMF Interest Rate Forecast
| Federal Reserve | ECB |
|---|
| Q3 2026 | 3.3% | 2.6% |
| Q4 2026 | 3.1% | 2.6% |
| Q1 2027 | 2.9% | 2.6% |
| Q2 2027 | 2.9% | 2.6% |
16 more rowsMay 1, 2024
We foresee both headline and core inflation falling to around 3% year over year by the end of 2024, down from 3.4% and 3.9% on a “trimmed mean” basis, respectively, in February. We expect inflation to fall to the midpoint of the RBA's 2%–3% target range in 2025.
Can You Get a 7% CD Account? There was a lot of excitement in August 2023 about a few credit unions offering 7% APYs on certificates. But those rates were offered for a limited time only and are no longer available. However, the nation's best CD rates are still well above 5%, with some pushing toward 6%.
Can I get 5% on a CD? ›
While they've stabilized in recent months, it's not hard to find CDs offering 5.00% APY if you know where to look. You can still get 5% CD rates at online banks, credit unions and even some traditional banks offering promotional CDs. Account details and annual percentage yields (APYs) are accurate as of June 25, 2024.
Can I put 100k in a CD? ›
Those with $100,000 or more may want to consider depositing their money into a jumbo certificate of deposit (CD) that's insured through a bank insured by the Federal Deposit Insurance Corp. (FDIC) or a credit union insured by the National Credit Union Administration (NCUA).
What is the money market prediction for 2024? ›
At the end of 2024, the top-yielding nationally available money market account and savings account are projected to be at 4.45 percent APY. Top savings and money market account yields will outpace inflation again in 2024.
How long will savings rates stay high in 2024? ›
Investors largely expect savings rates to hold steady in early 2024 and then decline as we head into summer. Savings account rates typically rise and fall with the federal-funds rate, the benchmark interest rate set by the Federal Reserve.
What is the best CD rate for $100,000? ›
Compare the Best Jumbo CD Rates
| Institution | Rate (APY) | Minimum Deposit |
|---|
| Justice Federal Credit Union | 5.25% | $100,000 |
| Connexus Credit Union | 5.25% | $100,000 |
| CD Bank | 5.20% | $100,000 |
| State Department Federal Credit Union | 5.20% | $100,000 |
11 more rowsProjected Interest Rates In The Next Five Years
ING's interest rate predictions indicate 2024 rates starting at 4%, with subsequent cuts to 3.75% in the second quarter. Then, 3.5% in the third, and 3.25% in the final quarter of 2024. In 2025, ING predicts a further decline to 3%.
